Navigating the Complexity of Energy Transitions and Global Realities

The International Energy Agency (IEA) recently declared that world oil demand will rise faster than expected in 2024, with consumption increasing globally by 1.1 million barrels per day (bpd), up 130,000 bpd from its previous forecast. 

In the last couple of years, policymakers, scholars and journalists have enthusiastically discussed the geopolitical advantages of transitioning towards cleaner, more environmentally friendly energy sources. They recognised that moving away from a fossil-fuel-dependent system would pose challenges for certain nations. Nevertheless, the prevailing belief was that this shift would not only contribute to combating climate change but also resolve the geopolitical dynamics associated with the old energy order. 

Such hopes, however, have since dwindled, with the energy transition becoming a tumultuous process sparking new conflicts and short-term risks.  

By the end of 2021, amidst an energy crisis in Europe and surging prices of natural gas and oil, even the staunchest supporters of the new energy order had come to terms with this reality and any lingering idealism dissipated following Russia’s invasion of Ukraine in February 2022. Oil prices leaped to a 14-year-high due to fear of supply shocks, leaving developing countries struggling to afford energy in any form and widening the rift between rich and poor nations. 

While prices are poised to bounce back this year, that does not mean we can afford complacency. 

The scale of the environmental crisis is daunting, and we should still work to address it, but meeting the world’s rising energy needs and tackling climate change does not have to exist in a vacuum or be at odds with each other.  

At this point, it seems inevitable that oil and gas will continue to be a crucial source of energy for the world economy for decades to come. Should oil suddenly disappear, vital products and services that use it or its derivatives would vanish too. Transportation systems would cease to operate, homes might face freezing conditions, supply chains would collapse, and there would be a surge in energy poverty. 

The bottom line is that it is possible to make substantial investments in renewable energy while still meeting the world's current and future oil demands. This strategy not only supports stability in a volatile global context but is crucial, considering that historical patterns reveal energy transitions span decades and follow diverse trajectories. 

This may involve sourcing additional supplies and in the near-term ramping up operations at diesel or coal facilities, building new LNG import terminals and engaging with oil rich countries such as Venezuela.